Certificate of Deposit Renewal Scam
In today's volatile markets, it is a good idea to hold some percentage of your portfolio in cash. One great place to park your cash you won't use for a while is in a certificate of deposit (CD). CDs are FDIC insured and lock in an interest rate for a given term. In exchange for a fixed term an interest rate, there is a penalty for early withdrawl of funds. CDs will typically yeild more interest than money market accounts in exchange for less liquid money.
Since CDs are very similar, you should shop around for a good rate before getting a CD. Banks know this and they've arranged a nice little scam to have a high initial interest rate and then turn around with a pitifully low interest rate in the future.
They'll give you a good up front rate (say 4.25% APY) for 6-12 months. Then when your term expires, they send you a form telling you your CD is about up and that if you don't want to change the interest rate they'll renew the account for the same term. However, these "renewal" rates are much worse than the prevailing "new money" rate. As an example, Wachovia is offering a new money 4.30 APY 12 month CD. However, their renewal rate is 1.2 APY for a 12 month CD. I'm not sure how long this link will work, but it is really telling how this scam works. A 300% difference in rates is completely absurd and below market in every way and is there only to abuse loyal customers.
You might claim this is not a scam, but at minimum it is totally immoral that these banks are not upfront about this. The only way to learn is through losing a lot of interest potential the hard way. When shoping for rates look at both the promotional rate as well as the standard rate.
So do yourself a favor, if you have a CD coming due, ALWAYS call and ask for the best "promotional" rate and threaten to take your money elsewhere if they don't give it to you. 10 minutes of your time can make you hundreds of dollars in interest. The Wachovia rep told me today that "everyone does this", but just because everyone does it doesn't make it right. I'm never going to bank at Wachovia again. Everyone may do this (maybe you lose 1.0% APY other places), but I've never seen it done to the level that Whachovia does. If I can't trust them to do the right thing on CD renewals, why should I trust them with my money?
Since CDs are very similar, you should shop around for a good rate before getting a CD. Banks know this and they've arranged a nice little scam to have a high initial interest rate and then turn around with a pitifully low interest rate in the future.
They'll give you a good up front rate (say 4.25% APY) for 6-12 months. Then when your term expires, they send you a form telling you your CD is about up and that if you don't want to change the interest rate they'll renew the account for the same term. However, these "renewal" rates are much worse than the prevailing "new money" rate. As an example, Wachovia is offering a new money 4.30 APY 12 month CD. However, their renewal rate is 1.2 APY for a 12 month CD. I'm not sure how long this link will work, but it is really telling how this scam works. A 300% difference in rates is completely absurd and below market in every way and is there only to abuse loyal customers.
You might claim this is not a scam, but at minimum it is totally immoral that these banks are not upfront about this. The only way to learn is through losing a lot of interest potential the hard way. When shoping for rates look at both the promotional rate as well as the standard rate.
So do yourself a favor, if you have a CD coming due, ALWAYS call and ask for the best "promotional" rate and threaten to take your money elsewhere if they don't give it to you. 10 minutes of your time can make you hundreds of dollars in interest. The Wachovia rep told me today that "everyone does this", but just because everyone does it doesn't make it right. I'm never going to bank at Wachovia again. Everyone may do this (maybe you lose 1.0% APY other places), but I've never seen it done to the level that Whachovia does. If I can't trust them to do the right thing on CD renewals, why should I trust them with my money?
Labels: money
posted by beatdodgers at
9:37 PM
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